T/F

1. As long as notes receivable are expected to be collected within a year, they are normally
classified on the balance sheet as a current liability. F
2. The direct write-off method records bad debt expense by estimating uncollectible accounts at
the end of the accounting period. F
3.

Choose

1. Why many companies sell on credit?

A. To increase sales volume C. In order to sell more services or product
B. To sell more than their competitors D. All E. None
2. If you have purchased goods on credit, you probably signed a note. From your viewpoint, the
note is;
A. Note receivable C. Account payable
B. Note payable D. Account receivable
3. An auditor tests an entity’s policy of obtaining credit approval before shipping goods to
customers in support of management’s financial statement assertion of

A. Valuation or allocation.
B. Completeness.
C. Existence or occurrence.
D. Rights and obligation
4. Which of the following controls most likely would help ensure that all credit sales
transactions of an entity are recorded?
A. The billing department supervisor sends copies of approved sales orders to the credit
department for comparison to authorized credit limits and current customer account
balances.
B. The accounting department supervisor independently reconciles the accounts receivable
subsidiary ledger to the accounts receivable control account monthly.
C. The accounting department supervisor controls the mailing of monthly statements to
customers and investigates any differences reported by customers.
The billing department supervisor matches pre numbered shipping documents with entries in
the sales journal

Match

A B

1. Validity A. assurance that account balance is not

2. Completeness overstated through the addition of fictitious customer
3. Cutoff B. all accounts receivable have been included in the
4. Ownership accounts receivable ledger
5. Valuation C. all transactions are recorded in the proper period
6. Classification D. accounts receivables are owned by the entity
7. Disclosure E. bad-debt expense, is fairly stated
F. ensuring that different types of receivables are
properly classified
G. included in significant recounting policies

Short answer

1. Write the common documents and records on purchase transactions